TOKYO -- Toshiba faces something of an identity crisis. Semiconductors have been the conglomerate's cash cow, but it is selling its flash memory unit to shore up its tattered finances. Somehow, the company needs to find a new calling and a new growth strategy.
Its best hope may be technology that has been helping the very business it is selling.
Toshiba on Sept. 28 signed a formal agreement to unload the memory unit to an American-South Korean-Japanese consortium led by U.S. investment fund Bain Capital, though the conglomerate will retain an interest. The sale holds the key to escaping negative net worth but will cause Toshiba's earnings to plunge. None of its other units clear the 100 billion yen ($886 million) operating profit threshold.
As one Toshiba employee put it, "We are seen as a semiconductor company on the stock market, and I wonder what we will retain after the sale" of Toshiba Memory.
The future might just hinge on something Toshiba calls Spinex -- an internet of things "architecture" combined with artificial intelligence. The company chose the name out of the belief that the technology will support its business, much like the spine of the human body.
Engineers sing the praises of Spinex at Toshiba Memory's flagship plant in Yokkaichi, in Japan's Mie Prefecture. They say the technology helps them quickly pinpoint defects, dramatically improving the efficiency of inspections.
The plant has a large server that processes some 2 billion slices of data from production and transport facilities every day. It used to take engineers an average of six hours to find the roots of defects, but Spinex has cut the time to less than two hours. The system has also automated more than 80% of the inspection process, up from less than 50%.
Rival Japanese tech companies such as NEC and Fujitsu have been striving to harness the internet of things, too. But a Toshiba executive sounded confident that the company's "manufacturing experience" can help it compete.
By adopting Spinex at the Yokkaichi plant and other group facilities, Toshiba is trying to prove to potential clients that the technology really does streamline manufacturing.
Toshiba offers the system -- and other information and communications technology services -- through a segment called industrial ICT solutions. Such services are typically offered in conjunction with the products of other segments, and the ICT division's contribution to earnings remains smaller than many think it should be.
The segment chalked up an operating profit of 11.6 billion yen for fiscal 2016 -- the year ended March 2017 -- on sales of 238.4 billion yen. The figures accounted for less than 5% of the group sums.
Toshiba officials have high hopes for the business, but the competition is stiff. IoT architecture is a top priority for Japanese and U.S. rivals like Hitachi and General Electric. And these players have much more financial muscle: While Toshiba's consolidated sales come to nearly 5 trillion yen, Hitachi chalks up some 9 trillion yen and GE rakes in the equivalent of more than 15 trillion yen.
There is no question, though, that Toshiba needs to promote new businesses.
The storage and electronic devices solutions segment, which includes semiconductors, contributed more than 90% of Toshiba's 270.8 billion yen group operating profit for fiscal 2016. Toshiba Memory accounted for most of the division's profit.
In terms of sales, storage and electronic devices logged 1.7 trillion yen last fiscal year. In second place, with 1.26 trillion yen, was the infrastructure systems and solutions business, which mainly produces elevators and water treatment systems.
The infrastructure segment controls the third-largest share of Japan's elevator market. Its ratio of operating profit to sales, however, was 4.6% -- far below the storage segment's 14.5%. In the current business year, the infrastructure division is expected to suffer a fall in profit.
The energy systems and solutions business, meanwhile, is unlikely to be the answer. The segment posted 974.9 billion yen in sales for the year, with thermal and hydraulic power generation systems and electricity distribution each providing around 300 billion yen in annual sales. But it is not the kind of business that boosts earnings sharply and quickly.
When it comes to nuclear power, Toshiba will only be including domestic earnings in its group results, having deconsolidated bankrupt U.S. nuclear plant builder Westinghouse Electric. There is little hope of building new plants in nuclear-wary Japan, which means Toshiba's operations are highly likely to be limited to decommissioning or reactivating existing reactors.
Toshiba's various other operations do not look like viable engines for the group. Retail and printing solutions -- a segment focused on point-of-sale systems and multifunction printers -- made a modest 507.6 billion yen in sales last fiscal year.
And though Toshiba-brand personal computers and TVs are ubiquitous, these electronics are actually lumped into a category called "others," as they do not generate enough money to form independent segments.
Excluding Toshiba Memory, the group booked consolidated sales of around 3.8 trillion yen for fiscal 2016 -- roughly half the amount for fiscal 2007.
"Scoring on doubles"
Toshiba's management problems have forced it to give up businesses that were supposed to provide earnings horsepower.
Toshiba sold its medical equipment and home appliance operations following an accounting scandal exposed in 2015. In 2016, the company crafted a rebuilding strategy centered on overseas nuclear power and the memory chip business. Now it is selling the memory unit to make up for a huge loss in the international nuclear power business, which came to light last December.
At this point, the company has little choice but to lean on backstage technology like Spinex.
A Toshiba executive used a baseball analogy to describe the company's predicament: In the absence of sluggers who can hit home runs, "we'll have to keep scoring on doubles for a while."
Even stringing singles together will be no easy task.